California Underpayment Penalty

[pongok]

I paid a large amount of estimated tax for 2023. So I have a huge refund. But TT still says I need to pay a penalty of underpayment of $4. Looking at form 5805, it looks like the estimated payment amount is not transferred. And I cannot override it. Any solution?

Thanks,

PC

[KrisD15]

On the Federal section, 

go to 

• Deductions & Credits 
• Estimates and Other Taxes Paid 
• Estimates START
• State estimated taxes for 2023 START 

Enter the state payments you made

[pongok]

Of course I did what you suggested. That's why TT says I have a large refund.

I just looked into the two forms - "underpayment statement" and "form 5805 WS II".

I made the 2023 estimated payment in June 2023. It was late for the first period, which was due on April 18, 2023. That's where the $4 penalty came from.

Now the questions:

1. According to form 5805, line 10, if the estimated tax I paid for the full year is more than the tax due, I don't owe any underpayment penalty.

2. Due to the natural disasters in California in 2023, I believe the state followed the federal guidelines in extending the April 18 deadline to October 15, 2023.

If either of the above 2 points are valid, there should not be any underpayment penalty. Please help clarify.

Thanks,

PC

[MonikaK1]

Question 1: Line 10 on California Form 5805 asks you to subtract your total payments from your required annual payment. Your required annual payment is not necessarily the same as the tax due. The required annual payment, line 6, is the smaller of 90% of your 2023 tax or 100% of the total tax on your 2022 return (110% if your 2022 AGI was over $150,000).

Question 2: California individuals and businesses impacted by 2022-23 winter storms qualify for an extension to file and pay taxes until November 16, 2023.

This includes:

• Individuals whose tax returns and payments are due on April 18, 2023.
• Quarterly estimated tax payments due January 17, 2023, March 15, 2023, April 18, 2023, June 15, 2023, and September 15, 2023.
• Business entities whose tax returns and payments are normally due on March 15 and April 18.
• Pass-through entity (PTE) elective tax payments due on March 15, 2023 and June 15, 2023.

Note: If your principal residence or place of business is in Modoc or Shasta counties, income tax filing and payment deadlines that fall between Feb. 21, 2023, and Aug. 15, 2023, are due Aug. 15, 2023.

If you have taxes due with your return, a penalty for underpayment of estimated taxes is calculated by TurboTax, and you paid estimated tax within the extended time period for California disasters:

Visit or revisit the Other Tax Situations section and review the Underpayment Penalty information to confirm it is correct. Go through the interview and follow the prompts; when you get to the Penalty Waivers screen, answer "yes" if you qualify for a disaster exception, then "yes" at the next screen to request a waiver of the penalty, in all or part. Enter the reason in the field provided.

If you live in a federally declared disaster area and met the special filing and payment deadlines for that disaster, you qualify for an automatic underpayment penalty waiver. Even if the penalty is calculated on the return, the IRS should not charge the penalty. 

See here for the IRS requirements for the California disasters for 2023.

If you get a notice from the IRS proposing to assess the penalty, see this IRS webpage for guidelines and next steps.

Because the Federal and state extended filing deadlines are available only for individuals living in areas impacted by official disaster declarations during specified dates, the deadlines themselves aren't updated in the software. The tax agencies made an administrative decision not to impose the penalties, but since the law itself didn't change, tax software including TurboTax still calculates the penalties. 

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment, or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

See here for related information from the California Franchise Tax Board.

[pongok]

For question 1:

My "required annual payment" (smaller of line 2 or line 5) is less than the estimated payment I made. (line 10) So I should not need to pay penalty according to form 5805. I still think TT's calculation is incorrect.

Anyway, TT gives me the option of letting Franchise Tax Board calculate this and send me a bill (if there is one). I elected to do this and see what FTB will do.

Thanks,

PC

[DaveF1006]

Yes, if you are unsure of the calculation, it is a wise choice to have the FTB calculate this for your own peace of mind.  As an FYI, Turbo Tax does offer a 100% accuracy guarantee. If you pay an IRS or state penalty or interest because of a TurboTax calculation error, we'll pay you the penalty and interest.  

Turbo Tax Accuracy Guarantee